Stock Markets18 hours ago (Jan 15, 2022 06:45AM ET)
By Yasin Ebrahim
Investing.com – The rotation to value from growth stocks has staying power as the sector can count on a powerful ally: A Federal Reserve desperate to rein in inflation.
The Invesco S&P 500 Pure Value exchange-traded fund has racked up gains of about 7% this year, while S&P 500 Growth Index is down about 5% year to date fuelled by bets a rising interest rate environment will hurt sectors of the market with longer-term cash flow horizons like tech, or growth stocks.
Unlike previous rotations to value, which just last year proved to be fleeting, the current rotation has staying power as the Fed’s “narrative has changed dramatically,” Johan Grahn, Head of ETF Strategy at Allianz told Investing.com in an interview earlier this week.
In the space of a few months, the Fed has moved on from “not even thinking about thinking about raising rates,” ditched “transitory” from its inflation vocabulary, and laid out the red carpet for policy normalization.
“Last year, the Fed was talking about potentially taking a little action in 2022, but it was really thinking about only doing something in 2023. But now the Fed is signalling that we’re going to do everything we can as soon as we can,” Grahn added.
“The rotation into value is more likely to stick around than it was last year, based on what the Fed is signalling and what we’re seeing in the bond market,” he added.
Hot debate has broken out on Wall Street about what exactly the new normal for the Fed will look like. A rate hike in March followed by several more hikes to take the Fed funds terminal rate to 2.5% by 2024? The start of quantitative tightening, or a balance sheet runoff starting in July?
While the guessing game on “normal” will continue for some time, there is no doubt that the Fed is having to play catch up, and may have to move faster on policy tightening as its tools are blunt to combat supply-driven inflation.
“Inflation is going to be hanging over our heads for a longer period of time and I think that the Fed is going to have no choice but to continue to move their rates up,” according to Grahn. “I happen to believe that they might move in a faster pace.”
“The consensus now is for rate hikes of about 25 basis points per quarter, but at some point, I wouldn’t be surprised if they said we’re going to hike by 50 basis points … that will trigger a quick rotation in value again.”
Rotation to Value Here to Stay as Fed Desperate to Vanquish Inflation Boogeyman
By John Shiffman WASHINGTON (Reuters) -The largest satellite provider in the United States said late Friday it will drop One America News, a move that could financially cripple…
AMSTERDAM (Reuters) – Apple (NASDAQ:AAPL) said on Saturday it would allow developers of dating apps in the Netherlands to offer non-Apple payment options to their users, complying…
(Reuters) -The London Stock Exchange Group (LON:LSEG) has proposed a special market for private companies to trade their shares publicly on the exchange on certain days, The…
Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
(C) 2007-2022 Fusion Media Limited. All Rights Reserved
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.